“A company should not allocate all of its corporate costs to its divisions.” Do you agree? Explain.

Answer:

Disagree. In general, companies have three choices regarding the allocation of corporate costs to divisions: allocate all corporate costs, allocate some corporate costs (those ?controllable? by the divisions), and allocate none of the corporate costs. Which one of these is appropriate depends on several factors: the composition of corporate costs, the purpose of the costing exercise, and the time horizon, to name a few. For example, one can easily justify allocating all corporate costs when they are closely related to the running of the divisions and when the purpose of costing is, say, pricing products or motivating managers to consume corporate resources judiciously.